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Competing for Dark Trades

Author

Listed:
  • Paul J. Irvine

    (Egle Karmaziene)

  • Egle Karmaziene

    (Vrije Universiteit Amsterdam)

Abstract

We use recent European restrictions to evaluate how traders substitute across available dark pools. Our findings suggest that restricting dark trading at the most prominent platform has a detrimental effect on dark trading activity. Annual dark trading in a restricted stock decreases by more than 50% over the six-month restriction period. Consistent with investors’ sticky relationships with specific dark pools, our results suggest that substitution across dark pools is remarkably low. Despite the availability of alternative dark pools, traders are unwilling to trade elsewhere. Our study provides evidence that dark trading is not a market of exchanges, but rather a collection of independent silos. This fact has implications for the vulnerability of dark trading to the introduction of an HFT into the pool, and sharpens our understanding of how the pecking order theory of trading actually functions.

Suggested Citation

  • Paul J. Irvine & Egle Karmaziene, 2023. "Competing for Dark Trades," Tinbergen Institute Discussion Papers 23-020/IV, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20230020
    as

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    File URL: https://papers.tinbergen.nl/23020.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    MiFID II; dark pool trading; competition;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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